##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-14053
 Milestone Scientific Inc.
  Delaware
    
    13-3545623State or other jurisdiction of 
Incorporation or organization
    
    (I.R.S. Employer
Identification No.)
 220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039
  973-535-2717
     o Yes þ No
 o Yes þ No
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



MILESTONE SCIENTIFIC INC.
 Form 10-K Annual Report
  
 TABLE OF CONTENTS
 PagePART IItem 1. Description of Business
    
    
    3Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    11Item 2. Description of Property
    
    
    11Item 3. Legal Proceedings
    
    
    12Item 4. Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Pruchases of
Equity Securities
    
    
    13Item 6. Selected Financial Data
    
    
    13Item 7. Managements Discussion and Analysis or Plan of Operations
    
    
    13Item 7A. Quantitative and Qualitative Disclosure about Market Risk
    
    
    21Item 8. Financial Statements
    
    
    21Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    21Item 9A. Controls and Procedures
    
    
    21Item 9B. Other Information
    
    
    22PART IIIItem 10. Directors, Executive Officers, Promoters and Control Persons and Corporate Governance;
Compliance with Section
16 (a) of the Exchange Act
    
    
    22Item 11. Executive Compensation
    
    
    25Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    27Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    30Item 14. Principal Accounting Fees and Services
    
    
    30PART IVItem 15. Exhibits
    
    
    31Footnotes
    
    
    32SIGNATURES
    
    
    33EXHIBITSExhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  FORWARD-LOOKING STATEMENTS
 Certain statements made in this Annual Report on Form 10-K are forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans
and objectives of management for future operations. Such statements involve known and unknown
risks, uncertainties and other factors that may cause actual results, performance or achievements
of Milestone to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking statements included
herein are based on current expectations that involve numerous risks and uncertainties. Milestones
plans and objectives are based, in part, on assumptions involving the continued expansion of
business. Assumptions relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business decisions, all of
which are difficult or impossible to predict accurately and many of which are beyond the control of
Milestone. Although Milestone believes that its assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate. In light of the
significant uncertainties inherent in the forward-looking statements included herein, particularly
in view of Milestones early stage operations, the inclusion of such information should not be
regarded as a representation by Milestone or any other person that the objectives and plans of
Milestone will be achieved. The Company undertakes no obligation to revise or update publicly any
forward-looking statements for any reason.
  2




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##### Table of Contents



PART I
 
 Item 1. Description of Business
 CompuDent ® CompuMed ® CompuFlo ® , The
Wand ® The Wand Plus ® The SafetyWand ® Cool Blue
Wand ® Cool Blue Tooth Whitening System  , Dynamic Pressure Sensing
Technology ® STA  Single Tooth Anesthesia Ionic White ® Ionic White 
 BUSINESS
 Background
  The Wand ® CompuDent ® Wand CompuDent CompuDent
 CompuMed ®
 CompuFlo . CompuFlo CompuDent CompuMed Dynamic Pressure Sensing ® Dynamic
Pressure Sensing
 CompuFlo In Situ
 CompuFlo CompuFlo
 CompuFlo
 CompuFlo
  3




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##### Table of Contents



CompuFlo CompuFlo
 STA Single Tooth Anesthesia System  STA System rd STA System CompuFlo STA System STA System
 STA System STA System STA System
 STA System
 STA System STA System
 CompuFlo Advanced Injection Technology  Core Technology
 CompuFlo CompuFlo
 CompuFlo.
  CompuFlo CompuFlo
  4




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##### Table of Contents



CompuFlo
 CompuFlo
 CompuFlo STA System CompuFlo STA System CompuDent CompuMed
 Product Platform
  STA Single Tooth Anesthesia System  (STA System)
 STA Single Tooth Anesthesia System (STA System) CompuFlo CompuDent STA System
 STA System Dentistry Today STA System STA Medical Device & Diagnostic Industry STA System STA STA System " Dentaltown
Magazine STA System Dental Products Report
 CompuDent ®
 CompuDent Wand Plus ® STA System CompuDent th CompuDent The
Wand ® )
 
    
    CompuDentminimizes the pain associated with palatal, mandibular block and all other injections,
resulting in a more comfortable injection experience for the patient;
    
    the pencil grip used with The Wandhandpieces allows unprecedented tactile sense and accurate control;
  5




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##### Table of Contents




    
    new injections made possible with the CompuDenttechnology eliminate collateral numbness of the
tongue, lips and facial muscles;
    
    bi-directional rotation of The Wandhandpieces eliminates needle deflection resulting in greater
success and more rapid onset of anesthesia in mandibular block injections;
    
    the use of a single patient use, disposable handpieces minimizes the risk of cross contamination; and
    
    the ergonomic design of The Wandhandpieces makes an injection easier and less stressful to
administer, lowering the risk of carpal tunnel syndrome.
 CompuDents CompuDent
 CompuMed ®
 CompuMed CompuDent. CompuMed CompuMed
 The Wand ®
 The Wand STA, CompuDent CompuMed The Wand
 The SafetyWand ®
 The SafetyWand SafetyWand The SafetyWand
 SafetyWand SafetyWand SafetyWand
 Competition
   6




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##### Table of Contents



STA
System STA System
  Patents and Intellectual Property
  U.S. PATENT
    
    
    DATE OFNUMBER
    
    
    ISSUEComputer Controlled Drug Delivery SystemsHypodermic Anesthetic Injection Apparatus & Method
    
    
    5,180,371
    
    
    
    1/19/1993Dental Anesthetic and Delivery Injection Unit
    
    
    6,022,337
    
    
    
    2/8/2000Design for a Dental Anesthetic Delivery System Holder
    
    
    D422,361
    
    
    
    4/4/2000Design for a Dental Anesthetic Delivery System Housing
    
    
    D423,665
    
    
    
    4/25/2000Design for a Dental Anesthetic Delivery System Handle
    
    
    D427,314
    
    
    
    6/27/2000Dental Anesthetic Delivery Injection Unit
    
    
    6,132,414
    
    
    
    10/17/2000Dental Anesthetic Delivery Injection Unit
    
    
    6,152,734
    
    
    
    11/28/2000Microprocessor-controlled Fluid Dispensing Apparatus
    
    
    6,159,161
    
    
    
    12/12/2000Pressure/Force Computer Controlled Drug Delivery System
    
    
    6,200,289
    
    
    
    3/13/2001Dental Anesthetic and Delivery Injection Unit with Automated Rate Control
    
    
    6,652,482
    
    
    
    11/25/2003Pressure/Force Computer Controlled Drug Delivery System with Exit Pressure
    
    
    6,786,885
    
    
    
    9/17/2004Pressure/Force Computer Controlled Drug Delivery System with Automated
Charging
    
    
    6,887,216
    
    
    
    5/3/2005Drug Delivery System with Profiles
    
    
    6,945,954
    
    
    
    9/20/2005Cartridge Holder for Anesthetic and Delivery Injection Device
    
    
    D558,340
    
    
    
    12/25/2007Design for Drive Unit for Anesthetic
    
    
    D566,265
    
    
    
    4/8/2008Design for Drive Unit for Anesthetic
    
    
    D579,540
    
    
    
    10/28/2008Drug Infusion Device with Tissue Identification Using Pressure Sensing
    
    
    7,449,008
    
    
    
    11/11/2008Engineered Sharps Injury Protection DevicesHandpiece for Injection Device with a Retractable and Rotating Needle
    
    
    6,428,517
    
    
    
    8/6/2002Safety IV Catheter Device
    
    
    6,726,658
    
    
    
    4/27/2004Safety IV Catheter Infusion Device
    
    
    6,905,482
    
    
    
    6/14/2005Handpiece for Injection Device with a Retractable and Rotating Needle
    
    
    6,966,899
    
    
    
    11/22/2005
 CompuFlo
  7




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CompuDent
   Government Regulation
 CompuDent CompuMed Safety Wand STA System
    8




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##### Table of Contents



STA System, CompuDent Safety Wand CompuMed
    STA System Safety Wand The Wand CompuDent
 Product Liability
  Employees
  
 Item 1A. CERTAIN RIS FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY
  Milestone has no history of profitable operations. Continuing losses could exhaust capital
resources and force us to discontinue operations.
   9




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Milestone cannot become successful unless it gains greater market acceptance for its products and
technology.
 CompuDent STA System SafetyWand CompuMed CompuFlo CompuDent STA System
 The Companys limited distribution channels must be expanded in order to become successful.
  Milestone depends on three principal manufacturers. If the Company cannot maintain its existing
relationships or develop new ones, it may have to cease operations
 STA System CompuDent CompuMed STA System, CompuDent CompuMed
 Milestone may be subject to product liability claims that are not fully covered by insurance and
that could put the Company under financial strain.
  Milestone relies on the continuing services of the Chairman, Chief Executive Officer and Director
of Clinical Affairs.
   10




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##### Table of Contents



The market price of Milestones common stock has been volatile and may continue to fluctuate
significantly because of various factors, some of which are beyond the Companys control.
  Milestone is controlled by a limited number of shareholders.
  Future sales or the potential for sale of a substantial number of shares of Milestones common
stock could cause the trading price of common stock and warrants to decline and could impair the
Companys ability to raise capital through subsequent equity offerings.
   Implementation of procedures to comply with the Sarbanes-Oxley Act and SEC rules concerning
internal controls may be so costly that compliance could have an adverse effect on the Company.
 Internal Control-Integrated Framework
 
 Item 1B. Unresolved Staff Comments
  
 Item 2. Description of Property
   11




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Item 3. Legal Proceedings
   
 Item 4. Submission of matters to a Vote of Security Holders
   12




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##### Table of Contents



PART II
 
 Item 5.
    Market for Common Equity and Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities
 Market Information
  Common Stock
  HIGH
    
    
    LOW2008First Quarter
    
    $
    1.57
    
    
    $
    0.75Second Quarter
    
    $
    1.05
    
    
    $
    0.56Third Quarter
    
    $
    0.80
    
    
    $
    0.30Fourth Quarter
    
    $
    0.40
    
    
    $
    0.202007First Quarter
    
    $
    3.62
    
    
    $
    1.12Second Quarter
    
    $
    2.90
    
    
    $
    1.52Third Quarter
    
    $
    2.49
    
    
    $
    1.55Fourth Quarter
    
    $
    2.50
    
    
    $
    1.55
 Holders
  Dividends
   Sales of Unregistered Securities
  
 ITEM 6. Selected Financial Data
  
 ITEM 7. Managements Discussion and Analysis of Financial condition and Results of Operations.
   13




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##### Table of Contents



OVERVIEW
  
    
    Optimizing the tactical approach to product sales and marketing in order to materially
increase penetration of the global dental and medical markets with a proprietary, patented
Computer-Controlled Local Anesthesia Delivery (C-CLAD) solution, the STA System; and
 
    
    Identifying and pursuing strategic collaborations with third parties to jointly develop
new products utilizing the CompuFlopressure force technology for novel new dental and
medical applications.
   STA System
  First International C-CLAD Summit
 STA System STA System STA System STA
System
 STA System Wins Broad Industry Recognition
 STA System Dentistry Today STA System STA System Medical Device & Diagnostic Industry STA System STA System Dental Products Report DPR DPR DPR STA System
  14




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Domestic Dental Distribution Network
 STA System
 STA System
    %
 International Dental Distribution Network
 STA System The Wand
 STA System
 STA System
 New Product Development and Commercialization
 CompuFlo
 CompuFlo
 CompuFlo
  15




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##### Table of Contents



Twelve Months Ended December 31,2008
    
    
    2007DOMESTICInstruments
    
    $
    914,431
    
    
    
    21.1
    %
    
    $
    1,554,825
    
    
    
    33.8
    %Handpieces
    
    
    3,373,159
    
    
    
    77.7
    %
    
    
    2,960,048
    
    
    
    64.5
    %Other
    
    
    54,097
    
    
    
    1.2
    %
    
    
    78,783
    
    
    
    1.7
    %Total Domestic
    
    $
    4,341,687
    
    
    
    100.0
    %
    
    $
    4,593,656
    
    
    
    100.0
    %INTERNATIONALInstruments
    
    $
    695,513
    
    
    
    30.9
    %
    
    $
    442,689
    
    
    
    26.5
    %Handpieces
    
    
    1,550,992
    
    
    
    68.8
    %
    
    
    1,201,532
    
    
    
    72.0
    %Other
    
    
    7,333
    
    
    
    0.3
    %
    
    
    24,731
    
    
    
    1.5
    %Total International
    
    $
    2,253,838
    
    
    
    100.0
    %
    
    $
    1,668,952
    
    
    
    100.0
    %DOMESTIC/INTERNATIONAL ANALYSISDomestic
    
    $
    4,341,687
    
    
    
    65.8
    %
    
    $
    4,593,656
    
    
    
    73.4
    %International
    
    
    2,253,838
    
    
    
    34.2
    %
    
    
    1,668,952
    
    
    
    26.6
    %Total Product Sales
    
    $
    6,595,525
    
    
    
    100.0
    %
    
    $
    6,262,608
    
    
    
    100.0
    %
   Current Product Platform
  
    
    STA Single Tooth Anesthesia System(STA System)- In February of 2007,
Milestone introduced to market the STA System, a patented CCLAD system that incorporates
the pressure force feedback elements of Milestones patented CompuFlotechnology, thereby
allowing dentists to administer injections accurately and painlessly into the periodontal
ligament space, effectively anesthetizing a single tooth. The STA Systemis also capable
of performing all of the injections that can be done with a conventional dental syringe,
including the palatal-anterior superior alveolar, anterior middle superior alveolar and
inferior alveolar nerve block. The STA Systemachieves all of these injections predictably
and reliably including the Periodontal-Intraligamentary injection (Single Tooth Anesthesia)
that provides an almost immediate onset of profound anesthesia to a single tooth.
Milestone received FDA 510(k) Pre-market Notification acceptance in August 2006 and was
granted a CE Mark by European regulatory authorities in June 2007.
  16




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STA System STA System Dentistry Today STA System STA Medical Device & Diagnostic
Industry STA System STA Dental Products Report DPR DPR DPR STA
System
 
    
    CompuDent® CompuDentwas distinguished by Dentaltown Magazineas the winner
of a 2006 Townie Choice Award, CompuDentis Milestones proprietary, patented
computer-controlled local anesthetic delivery system which delivers anesthesia at a precise
and consistent rate below a patients pain threshold. CompuDenthas been widely heralded
as a revolutionary device, considered one of the major advances in dentistry of the
Twentieth Century and favorably evaluated in approximately 50 peer reviewed or independent
clinical research reports. CompuDentis the predecessor device to the STA System.
 
    
    CompuMed® CompuMedis a patented computer-controlled injection system
geared to the needs of the medical market and providing benefits similar to CompuDent.
CompuMedallows many medical procedures, now requiring intravenous sedation, to be
performed with only local anesthesia due to dramatic pain reduction. Also, dosages
of local anesthetic can often be significantly reduced, thus reducing side effects,
accelerating recovery times, lowering costs and eliminating potential complications.
CompuMedis now gaining growing clinical evidence demonstrating benefits from use in
colorectal surgery; podiatry; dermatology, including surgery for the removal of basal cell
carcinomas and other oncological dermatologic procedures; nasal and sinus surgery,
including rhinoplasty; hair transplantation and plastic surgery, among others.
 
    
    The Wand® Used in conjunction with the STA, CompuDentor CompuMedsystems,
The Wandis an ergonomically designed and patented handpiece that enables all traditional
and newer injections, such as AMSA, P-ASA and Modified-PDL, to be more comfortable and
easier to deliver. Moreover, the pen-like grasp of The Wandallows bi-directional rotation
during injection, which prevents needle deflection that can occur with a traditional
syringe. A straighter path results in a more accurate injection, meaning fewer missed
blocks, and more rapid onset of anesthesia.
 
    
    The SafetyWand®  The Safety Wandwas the first, patented safety-engineered
injection device that conforms to standards while also meeting the clinical needs of dental
and medical practitioners. The Federal Needlestick Prevention Act (U.S.) has mandated the
use of products with engineered safety injury protection to eliminate accidental needle
sticks, thus providing Milestone with an invaluable marketing platform to position The
SafetyWandas a powerful and capable alternative to traditional injection devices. The
SafetyWandwas the first patented injection device to be fully compliant with OSHA
regulations under the Act.
 Technology Rights
 SafetyWand CompuFlo CompuDent
  17




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##### Table of Contents



Summary of Critical Accounting Policies and Significant Judgments and Estimates
   Accounts Receivable
  Inventories
  Impairment of Long-Lived Assets
  Revenue Recognition
    18




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##### Table of Contents



Results of Operations
  Twelve Months EndedDecember 31, 2008
    
    
    December 31, 2007Products sales, net
    
    $
    6,595,525
    
    
    
    99
    %
    
    $
    6,262,608
    
    
    
    98
    %Royalty income
    
    
    28,282
    
    
    
    1
    %
    
    
    128,105
    
    
    
    2
    %Total revenue
    
    
    6,623,807
    
    
    
    100
    %
    
    
    6,390,713
    
    
    
    100
    %Cost of products sold
    
    
    2,681,116
    
    
    
    40
    %
    
    
    2,898,048
    
    
    
    45
    %Gross Profit
    
    
    3,942,691
    
    
    
    60
    %
    
    
    3,492,665
    
    
    
    55
    %Selling, general and administrative expenses
    
    
    5,502,762
    
    
    
    83
    %
    
    
    6,577,086
    
    
    
    103
    %Research and development expenses
    
    
    168,516
    
    
    
    3
    %
    
    
    397,354
    
    
    
    6
    %Operating expenses
    
    
    5,671,278
    
    
    
    86
    %
    
    
    6,974,440
    
    
    
    109
    %Loss from operations
    
    
    (1,728,587
    )
    
    
    -26
    %
    
    
    (3,481,775
    )
    
    
    -54
    %Other income
    
    
    541,133
    
    
    
    8
    %
    
    
    543,079
    
    
    
    8
    %Net loss
    
    $
    (1,187,454
    )
    
    
    -18
    %
    
    $
    (2,938,696
    )
    
    
    -46
    %
 Year ended December 31, 2008 compared to year ended December 31, 2007
 CompuDent STA STA
    STA
  19




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STA
     Liquidity and Capital Resources
        20




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##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments Due by PeriodLess than 1Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 YearsLong-term debt obligations
    
    $
    1,750,000
    
    
    $
    
    
    
    $
    1,300,000
    
    
    $
    450,000Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    66,384
    
    
    
    52,294
    
    
    
    14,090
    
    
    
    Purchase obligations (1)
    
    
    1,359,668
    
    
    
    1,359,668
    
    
    
    
    
    
    
    Total
    
    $
    3,176,052
    
    
    $
    1,411,962
    
    
    $
    1,314,090
    
    
    $
    450,000
 (1)
    
    Purchase obligations include agreements for the purchase of units and handpieces. The
agreements are referred as purchase orders. All handpieces and STA
units purchase orders
are for delivery in less than one year. Recent Accounting Pronouncements
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 8. Financial Statements
  
 Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
   21




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Managements Annual Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets;
 
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of the financial statements in
accordance with generally accepted accounting principles in the
United States, and that the receipts and expenditures are being
made only in accordance with authorizations of the management and
directors; and
 
    
    provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
assets that could have a material effect on the financial
statements.
  Internal Control  Integrated Framework
   
 Item 9B. Other Information
  
 PART III
 
 Item 10.
    Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16 (a) of the Exchange Act.
   NAME
    
    AGE
    
    
    POSITION
    
    
    DIRECTOR SINCELeonard A. Osser
    
    
    61
    
    
    Chairman
    
    
    1991Joe W. Martin
    
    
    56
    
    
    Chief Executive Officer
    
    
    2008Joseph DAgostino
    
    
    57
    
    
    Chief Financial OfficerPablo Felipe Serna Cardenas (2)
    
    
    33
    
    
    Director
    
    
    2006Leonard M.
Schiller (1)(2)
    
    
    67
    
    
    Director
    
    
    1997Jeffrey
Fuller (1)
    
    
    63
    
    
    Director
    
    
    2003Leslie
Bernhard (1)(2)
    
    
    64
    
    
    Director
    
    
    2003
 
 (1)
    
    Member of the Audit Committee(2)
    
    Member of the Compensation Committee  22




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Key Personnel
  NAME
    
    AGE
    
    
    POSITIONEugene Casagrande, D.D.S.
    
    
    65
    
    
    Director of Professional RelationsMark Hochman, D.D.S.
    
    
    51
    
    
    Director of Clinical AffairsRobert A. Presutti
    
    
    56
    
    
    Vice President of Sales and Marketing
          Sonicare
  23




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##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance
   Code of Ethics
 www.milesci.com
  24




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Item 11. Executive Compensation.
  SUMMARY OF COMPENSATION TABLE
 Other
    
    
    OptionNAME AND PRINCIPAL POSITION
    
    YEAR
    
    
    Salary
    
    
    Bonuses
    
    
    Compensation
    
    
    Awards (2)
    
    
    TotalLeonard A. Osser
    
    
    2008
    
    
    $
    200,000
    (1)
    
    
    
    
    
    $
    18,408
    
    
    
    
    
    
    $
    218,408Chairman
    
    
    2007
    
    
    $
    300,000
    (1)
    
    
    
    
    
    $
    16,660
    (1)
    
    
    
    
    
    $
    316,660Joe W. Martin
    
    
    2008
    
    
    $
    300,000
    
    
    $
    70,000
    
    
    $
    3,696
    
    
    $
    80,000
    (2)
    
    $
    453,696Chief Executive Officer
    
    
    2007
    
    
    $
    184,483
    
    
    $
    80,000
    
    
    $
    909
    
    
    
    
    
    
    $
    265,392Joseph DAgostino
    
    
    2008
    
    
    $
    165,000
    
    
    $
    28,000
    
    
    $
    2,737
    
    
    
    
    
    
    $
    195,737Chief Financial Officer
    
    
    2007
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
 (1)
    
    Includes $100,000 and $150,000 in deferred compensation in 2008 and 2007, respectively,
in accordance with his employment agreement to be paid in common stock and not paid until
the termination of the agreement in 2012 (under new employment agreement) or thereafter, if
further extended. Other compensation represents payments made for health insurance
coverage.(2)
    
    The amounts in this column reflect the expense recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2008, in accordance with SFAS
123(R), Share-based Payments. for outstanding stock options granted as part of the stock
option plan. For details used in the assumption calculating the fair value of the option
reward, see Note B to the Financial Statements for the year ended December 31, 2008, which
is located on pages F-7 through F-11 of the Annual Report on Form 10-K. Compensation cost
is generally recognized over the vesting period of the award. The number of shares
underlying this option award totaled 80,000 shares. See the table below entitled
Outstanding Equity Awards at December 31, 2008 and 2007. Employment Contracts
       25




---



##### Table of Contents



Objective of Executive Compensation Program
      Outstanding Equity Awards at December 31, 2008 and 2007
  2008 Options Awards
    
    
    
    
    
    
    2007 Options AwardsNumber of Securities
    
    
    
    
    
    
    
    
    
    
    Number of SecuritiesUnderlying Unexercised
    
    
    Option Exercise
    
    
    Option Expiration
    
    
    Underlying Unexercised
    
    
    Option Exercise
    
    
    Option ExpirationName
    
    Options Exercisable
    
    
    Price ($)
    
    
    Date
    
    
    Options Exercisable
    
    
    Price ($)
    
    
    DateLeonard Osser
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,667
    (1)
    
    $
    0.87
    
    
    
    1/1/2008Joe W. Martin
    
    
    80,000
    
    
    $
    1.00
    
    
    
    4/25/2013
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    fully vested on 1-1-06 Compensation of Directors
   26




---



##### Table of Contents



Director Compensation
 2008
    
    
    2007Name
    
    Option Awards (1)
    
    
    Option Awards (1)Leonard M. Schiller
    
    $
    14,800
    (2)
    
    $
    22,200
    (3)Jeffrey Fuller
    
    $
    14,800
    (2)
    
    $
    22,200
    (3)Leslie Bernhard
    
    $
    14,800
    (2)
    
    $
    22,200
    (3)Pablo Felipe Serna
Cardenas
    
    $
    14,800
    (2)
    
    $
    22,200
    (3)
 (1)
    
    Amounts are calculated using the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123R, Share-based Payments.(2)
    
    On June 5, 2008, each
of Milestones independent directors was awarded options
exercisable for 20,000 shares of common stock at $0.74 per share.(3)
    
    On June 5, 2007, each of Milestones independent directors was awarded options
exercisable for 20,000 shares of common stock at $1.68 per share. 
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  March 16, 2009
    
    
    March 31, 2008Shares of Common Stock
    
    
    Percentage
    
    
    Shares of Common Stock
    
    
    PercentageNames of Benefical Owner (1)
    
    Beneficially Owned (2)
    
    
    of Ownership
    
    
    Beneficially Owned (2)
    
    
    of OwnershipExecutive Officers and DirectorsLeonard Osser
    
    
    1,353,413
    (3)
    
    
    11.34
    %
    
    
    1,465,406
    (3)
    
    
    12.53
    %Joe W. Martin
    
    
    426,061
    (4)
    
    
    3.30
    %
    
    
    
    
    
    
    
    *Joseph DAgostino
    
    
    29,231
    (5)
    
    
    
    *
    
    
    
    
    
    
    
    *Leonard Schiller
    
    
    113,228
    (6)
    
    
    
    *
    
    
    93,228
    (6)
    
    
    
    *Pablo Felipe Serna Cardenas
    
    
    50,000
    (7)
    
    
    
    *
    
    
    30,000
    (7)
    
    
    
    *Jeffrey Fuller
    
    
    90,000
    (8)
    
    
    
    *
    
    
    76,667
    (8)
    
    
    
    *Leslie Bernhard
    
    
    80,000
    (9)
    
    
    
    *
    
    
    66,667
    (9)
    
    
    
    *All directors & executive officers as group (7 persons)
    
    
    2,141,933
    
    
    
    16.57
    %
    
    
    1,731,968
    
    
    
    14.81
    %K. Tucker Andersen
    
    
    1,475,033
    (10)
    
    
    11.41
    %
    
    
    1,483,969
    (10)
    
    
    12.68
    %
 
 *
    
    Less than 1%(1)
    
    The addresses of the persons named in this table are as follows: Leonard A. Osser, Joe
W. Martin and Joseph DAgostino are all at 220 South Orange Avenue, Livingston Corporate
Park, Livingston, NJ 07039; Leonard M. Schiller, Schiller, Klein & McElroy, P.C., 33 North
Dearborn Street, Suite 1030, Chicago, Illinois 60602; Pablo Felipe Serna Cardenas, Via
Camillo Golgi 2 Opera, Italy 20090; Jeffrey Fuller, Eagle Chase, Woodbury, NY 11797; Leslie
Bernhard, AdStar, Inc., 4553 Glencoe Avenue, Suite 325, Marina del Rey, California 90292;
K. Tucker Anderson, c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York,
New York 10036.(2)
    
    A person is deemed to be a beneficial owner of securities that can be acquired by such
person within 60 days from March 16, 2009 and 2008, as applicable, upon the exercise of
options and warrants or conversion of convertible securities. Each beneficial owners
percentage ownership is determined by assuming that options, warrants and convertible
securities that are held by such person (but not held by any other person) and that are
exercisable or convertible within 60 days from the filing of this report have been
exercised or converted. Except as otherwise indicated, and subject to applicable community
property and similar laws, each of the persons named has sole voting and investment power
with respect to the shares shown as beneficially owned. All percentages are determined
based on the number of all shares, including those underlying options exercisable within 60
days from the filing of this report held by the named individual, divided by 12,925,694 and
11,697,837 outstanding shares on March 16, 2009 and March 31, 2008, respectively, plus
those shares underlying options exercisable within 60 days from the filing of this report
held by the named individual or the group.(3)
    
    March 31, 2008 includes 120,994 shares issuable upon the exercise of warrants within 60
days of the date hereof, which are exercisable at $4.89. The warrants noted in 2008 expired
in February 2009.(4)
    
    March 16, 2009 includes 190,505 shares held by Mr. Martin, 80,000 options at $1.00 per
share issued in April 2008 and 155,556 options at $0.45 per share issued in February 2009.
The stock options are exercisable to the extent of one third (1/3) of the option granted at
the expiration of each of the first three years, beginning one year after the date of
grant.  27




---



##### Table of Contents



(5)
    
    Includes 29,231 shares held by Mr. DAgostino.(6)
    
    March 16, 2009 includes 110,000 stock options, the 80,000 options listed in March 31,
2008, an additional 20,000 shares at $0.74 issued in June 2008 and 13,228 shares held by
Mr. Schiller. March 31, 2008, includes 80,000 shares subject to stock options, one half of
each grant was exercisable immediately and the remaining one half exercisable one year
after the grant date as follows: 20,000 shares at $3.27 per share, 20,000 shares at $1.40
per share, 20,000 shares at $0.83 per share and 20,000 shares at $1.68. Also included is
13,228 shares held by Mr. Schiller.(7)
    
    March 16, 2009 includes 50,000 stock options, the 30,000 options listed in March 31,
2008 and an additional 20,000 shares at $0.74 issued in June 2008. March 31, 2008 includes
30,000 shares subject to stock options, one half of each grant was exercisable immediately
and the remaining one half exercisable one year after the grant date as follows: 10,000
shares at $0.83 per share and 20,000 shares at $1.68.(8)
    
    March 16, 2009 includes 90,000 stock options, 20,000 shares at $0.74 issued in June
2008, 20,000 shares at $3.27 per share, 20,000 shares at $1.40 per share, 10,000 shares at
$0.83 and 20,000 shares at $1.68 per share. March 31, 2008 includes 76,667 shares subject
to stock options, one half of each grant was exercisable immediately and the remaining one
half exercisable one year after the grant date as follows: 6,667 shares at $1.50 per share,
20,000 shares at $3.27 per share, 20,000 shares at $1.40 per share, 10,000 shares at $0.83
per share and 20,000 shares at $1.68.(9)
    
    March 16, 2009 includes 80,000 stock options, 20,000 shares at $3.27, 20,000 shares at
$1.40, 20,000 shares at $1.68 and 20,000 shares at $0.74. March 31, 2008 includes 66,667
shares subject to stock options, one half of each grant was exercisable immediately and the
remaining one half exercisable one year after the grant date as follows: 6,667 shares at
$1.50 per share, 20,000 shares at $3.27 per share, 20,000 shares at $1.40 per share and
20,000 shares at $1.68.(10)
    
    March 16, 2009 includes 175,000 stock options, 130,000 at $5.00 and 45,000 at $0.32.
March 31, 2008 included 183,946 shares subject to warrants all of which are exercisable
within 60 days of the date hereof at $4.89 these warrants expired in February 2009. The
2008 amount includes 100,000 shares subject to warrants at $5.00 per share. Securities Authorized for Issuance Under Equity Compensation Plans
 Equity Compensation Plan Information
  Number of securities (1)Number of Securities (1) to
    
    
    Weighted-average exercise
    
    
    remaining available forbe issued upon exercise of
    
    
    price of outstanding
    
    
    future issuance underoutstanding options and warrants
    
    
    options and warrants
    
    
    equity compensation planEquity compensation plan approved by
stockholders (1)Grants under our 1997 Stock Option Plan
    
    
    84,000
    
    
    $
    3.74
    
    
    
    177,999Grants under our 2004 Stock Option Plan
    
    
    486,832
    
    
    
    1.01
    
    
    
    428,000Equity compensation plan not approved by
stockholders (2)
    
    
    
    
    
    
    
    
    
    Not applicableAggregate individual option and warrants grants
    
    
    3,030,413
    
    
    
    4.40Total
    
    
    3,601,245
    
    
    
    3.92
 
 (1)
    
    Consisting of the 1997 stock option plan covering a total of 333,333 common shares underlying
options issuable to officers and other key employees and excluding 2,333 options, which were
exercised in October 2003, 16,667 options, which were exercised in December 2003, 333 options
which were exercised in April 2005 and 26,666 shares exercised in 2007. The plan has a term of
10 years and is administered by a committee appointed by the board of directors. The
committee, in its sole discretion, determines who is eligible to receive these incentive stock
options, how many options they will receive, the term of the options, the exercise price and
other conditions relating to the exercise of the options. Stock options granted under the plan
must be exercised within a maximum of 10 years from the date of grant at an exercise price
that is not less than the fair market value of the common shares on
the date of the grant. Options granted to shareholders owning more than 10% of the outstanding
common shares must be exercised within five years from the date of grant and the exercise price
must be at least 110% of the fair market value of the common shares on the date of the grant. No
options were exercised in 2008 and options exercised in 2007 were 6,667.  28




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##### Table of Contents



In July 2004 the Board of Directors approved the adoption of the 2004 Stock Option Plan. The 2004
Stock Option Plan provides for the grant of options to purchase up to 500,000 shares of
Milestones common stock. Options may be granted to employees, officers, directors and
consultants of Milestone for the purchase of common stock of Milestone at a price not less than
the fair market value of the common stock on the date of the grant. In general, options become
exercisable over a three-year period from the grant date and expire five years after the date of
grant. No options were exercised in 2008 and options exercised in 2007 were 60,000.In March 2008, the Board of Directors authorized an additional 250,000 options to this plan.(2)
    
    The aggregate individual option grants outside the Stock Option Plans referred to in the
table above include options issued as payment for services rendered to us by outside
consultants and providers of certain services. The aggregate individual warrant grants
referred to in the table above include warrants granted to investors in Milestone as part of
private placements and credit line arrangements. Stock Plan
           29




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions and Director Independence
  Director Independence
   
 Item 14. Principal Accounting Fees and Services
 Audit Fees
  Audit Related Fees
  Tax Fees
  All Other Fees
  Audit Committee Administration of the Engagement
  Audit Committee Pre-Approval Policies and Procedures
   30




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##### Table of Contents



PART IV
 
 Item 15. Exhibits
 (a) Exhibits
  EXHIBITNO.
    
    DESCRIPTION3.1
    
    
    Certificate of Incorporation of Milestone (1)3.2
    
    
    Certificate of Amendment filed July 13, 1995 (2)3.3
    
    
    Certificate of Amendment filed December 6, 1996 (3)3.4
    
    
    Certificate of Amendment filed December 17, 1997 (4)3.5
    
    
    Certificate of Amendment filed July 23, 2003 (6)3.6
    
    
    Certificate of Amendment filed January 8, 2004. (6)3.7
    
    
    Certificate of Designation filed January 15, 2004 (6)3.8
    
    
    By-laws of Milestone (1)4.1
    
    
    Specimen stock certificate (2)4.3
    
    
    Form of warrant agreement, including form of warrant (8)10.1
    
    
    Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3)10.2
    
    
    Agreement with DaVinci Systems dated July 30, 2003 (6)10.3
    
    
    Agreement with Strider dated September 3, 2003 (6)10.4
    
    
    Agreement with Len Osser and K. Tucker Andersen, dated October 9, 2003 (6)10.5
    
    
    Agreement with Morse, Zelnick, Rose & Lander dated December 22, 2003 (6)10.6
    **
    
    Employment Agreement with Leonard Osser dated December 20, 2003 (6)10.7
    
    
    Agreement with United Systems dated October 20, 2004 (9)10.8
    
    
    Agreement with Mark Hochman dated as of January 1, 2005 (9)10.9
    
    
    Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. and Milestone (9)10.10
    
    
    Agreement with DaVinci regarding exclusive license over patented products dated June 1, 2004 (10)10.11
    **
    
    Employment Agreement with Leonard Osser dated January 1, 2008* (11)10.12
    **
    
    Employment Agreement with Joe W. Martin dated May 2, 2007* (11)14
    
    
    Code of Ethics (7)23.1
    
    
    Consent of Holtz Rubenstein Reminick LLP*31.1
    
    
    Rule 13a-14(a) Certifications  Chief Executive Officer*31.2
    
    
    Rule 13a-14(a) Certifications  Chief Financial Officer*32.1
    
    
    Section 1350 Certifications- Chief Executive Officer*32.2
    
    
    Section 1350 Certifications- Chief Financial Officer*
 
 *
    
    Filed herewith.**
    
    Indicates management contract or compensatory plan or arrangement  31




---



##### Table of Contents



(1)
    
    Incorporated by reference to Milestones Registration Statement on Form SB-2 No. 33-92324.(2)
    
    Incorporated by reference to Amendment No. 1 to Milestones Registration Statement on Form
SB-2 No. 333-92324.(3)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 1996.(4)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 1999.(5)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110376,
Amendment No. 1.(6)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110376,
Amendment No. 3.(7)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2003.(8)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110367,
Amendment No. 5.(9)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2004.(10)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2005.(11)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2007.  32




---



##### Table of Contents



SIGNATURES
  Milestone Scientific Inc.By:
    /s/ Joe W. MartinChief Executive Officer   Signature
    
    Date
    
    Title/s/ Joe W. Martin
    
    March 16, 2009
    
    Chief Executive OfficerJoe W. Martin/s/ Joseph DAgostino
    
    March 16, 2009
    
    Chief Financial OfficerJoseph DAgostino/s/ Leonard Osser
    
    March 16, 2009
    
    DirectorLeonard Osser/s/ Leonard Schiller
    
    March 16, 2009
    
    DirectorLeonard Schiller/s/ Jeffery Fuller
    
    March 16, 2009
    
    DirectorJeffrey Fuller/s/ Leslie Bernard
    
    March 16, 2009
    
    DirectorLeslie Bernhard/s/ Pablo Felipe Serna Cardenas
    
    March 16, 2009
    
    DirectorPablo Felipe Serna Cardenas
  33




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Balance Sheets as of December 31, 2008 and 2007
    
    
    F-3Statements of Operations for the years ended December 31, 2008 and 2007
    
    
    F-4Statements of Changes in Stockholders Equity for the years ended December 31, 2008 and 2007
    
    
    F-5Statements of Cash Flows for the years ended December 31, 2008 and 2007
    
    
    F-6Notes to Financial Statements
    
    
    F-7
  F-1




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
  F-2




---



##### Table of Contents

]

December 31, 2008
    
    
    December 31, 2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    743,665
    
    
    $
    745,003Accounts receivable, net of allowance for doubtful accounts of $5,000 in 2008 and 2007
    
    
    925,742
    
    
    
    346,347Royalty receivable
    
    
    
    
    
    
    15,358Inventories
    
    
    719,902
    
    
    
    1,636,744Advances to contract manufacturer
    
    
    250,110
    
    
    
    651,854Prepaid expenses and other current assets
    
    
    218,296
    
    
    
    169,727Total current assets
    
    
    2,857,715
    
    
    
    3,565,033Advances to contract manufacturer
    
    
    415,780
    
    
    
    540,730Investment in distributor, at cost
    
    
    76,319
    
    
    
    76,319Furniture,
Fixtures & Equipment net of accumulated depreciation of
$345,377 as ofDecember 31 ,2008 and $284,144 as of December 31, 2007
    
    
    152,574
    
    
    
    220,808Patents, net of accumulated amortization of $135,406 as of December 31, 2008
and $79,498 as of December 31, 2007
    
    
    901,045
    
    
    
    559,378Other assets
    
    
    7,317
    
    
    
    27,297Total assets
    
    $
    4,410,750
    
    
    $
    4,989,565LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    829,130
    
    
    $
    1,855,835Accrued expenses and other payable
    
    
    495,897
    
    
    
    216,936Total current liabilities
    
    
    1,325,027
    
    
    
    2,072,771Long-term Liabilities:Accounts payable-long term
    
    
    
    
    
    
    443,847Line of credit-net of discount of $52,530 and $65,371, respectively
    
    
    1,247,470
    
    
    
    934,629Notes Payable-net of discount of $11,927
    
    
    438,073
    
    
    
    Total long-term liabilities
    
    
    1,685,543
    
    
    
    1,378,476Commitments and ContingenciesStockholders EquityCommon stock, par value $.001; authorized 50,000,000 shares; 12,695,685 shares issued
504,639 shares to be issued and 12,662,352 shares outstanding as of December 31,
2008;
11,787,572 shares issued, 421,306 shares to be issued, and 11,754,239 shares
outstanding
as of December 31, 2007
    
    
    13,200
    
    
    
    12,210Additional paid-in capital
    
    
    59,531,865
    
    
    
    58,483,539Accumulated deficit
    
    
    (57,233,369
    )
    
    
    (56,045,915
    )Treasury stock, at cost, 33,333 shares
    
    
    (911,516
    )
    
    
    (911,516
    )Total stockholders equity
    
    
    1,400,180
    
    
    
    1,538,318Total liabilities and stockholders equity
    
    $
    4,410,750
    
    
    $
    4,989,565
   F-3




---



##### Table of Contents



2008
    
    
    2007Product sales, net
    
    $
    6,595,525
    
    
    $
    6,262,608Royalty income
    
    
    28,282
    
    
    
    128,105Total revenue
    
    
    6,623,807
    
    
    
    6,390,713Cost of products sold
    
    
    2,681,116
    
    
    
    2,898,048Gross profit
    
    
    3,942,691
    
    
    
    3,492,665Selling, general and administrative expenses
    
    
    5,502,762
    
    
    
    6,577,086Research and development expenses
    
    
    168,516
    
    
    
    397,3545,671,278
    
    
    
    6,974,440Loss from operations
    
    
    (1,728,587
    )
    
    
    (3,481,775
    )Other income & (expense)Other income
    
    
    675,930
    
    
    
    552,005Interest income
    
    
    9,023
    
    
    
    17,440Interest expense
    
    
    (116,374
    )
    
    
    (19,752
    )Amortized debt issuance
    
    
    (27,446
    )
    
    
    (6,614
    )Total other income
    
    
    541,133
    
    
    
    543,079Net loss
    
    $
    (1,187,454
    )
    
    $
    (2,938,696
    )Net loss applicable to common stockholders
    
    $
    (1,187,454
    )
    
    $
    (2,938,696
    )Loss per share applicable to common stockholders 
basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.24
    )Weighted average shares outstanding and to be issued 
basic and diluted
    
    
    12,666,979
    
    
    
    12,141,525
   F-4




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##### Table of Contents



AdditionalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, December 31, 2006
    
    
    12,029,672
    
    
    
    12,031
    
    
    
    57,720,129
    
    
    
    (53,107,219
    )
    
    
    (911,516
    )
    
    
    3,713,425Options issued for payment of consulting
services
    
    
    
    
    
    
    
    
    
    
    285,282
    
    
    
    
    
    
    
    
    
    
    
    285,282Common stock issued from exercise of options
    
    
    66,667
    
    
    
    67
    
    
    
    71,134
    
    
    
    
    
    
    
    
    
    
    
    71,201Common stock and options issued for payment
of employee compensation
    
    
    28,269
    
    
    
    28
    
    
    
    185,093
    
    
    
    
    
    
    
    
    
    
    
    185,121Common Shares to be issued in settlement of
deferred compensation
    
    
    84,270
    
    
    
    84
    
    
    
    149,916
    
    
    
    
    
    
    
    
    
    
    
    150,000Warrants issued in connection with Line of
Credit
    
    
    
    
    
    
    
    
    
    
    71,985
    
    
    
    
    
    
    
    
    
    
    
    71,985Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,938,696
    )
    
    
    
    
    
    
    (2,938,696
    )Balance, December 31, 2007
    
    
    12,208,878
    
    
    
    12,210
    
    
    
    58,483,539
    
    
    
    (56,045,915
    )
    
    
    (911,516
    )
    
    
    1,538,318Options issued to employees and consultants
    
    
    
    
    
    
    
    
    
    
    151,920
    
    
    
    
    
    
    
    
    
    
    
    151,920Common stock issued for payment of
services to settle accounts payable
    
    
    156,448
    
    
    
    156
    
    
    
    262,590
    
    
    
    
    
    
    
    
    
    
    
    262,746Common stock issued for
payment of consulting services
to settle accounts payable
    
    
    356,063
    
    
    
    356
    
    
    
    315,743
    
    
    
    
    
    
    
    
    
    
    
    316,099Common stock issued for
payment of employee compensation
    
    
    135,602
    
    
    
    135
    
    
    
    98,284
    
    
    
    
    
    
    
    
    
    
    
    98,419Common shares to be issued in
settlement of deferred compensation
    
    
    83,333
    
    
    
    83
    
    
    
    99,917
    
    
    
    
    
    
    
    
    
    
    
    100,000Common stock issued for patents in settlement
of lawsuit
    
    
    260,000
    
    
    
    260
    
    
    
    93,340
    
    
    
    
    
    
    
    
    
    
    
    93,600Warrants issued in connection with
amendment to Line of Credit
    
    
    
    
    
    
    
    
    
    
    12,579
    
    
    
    
    
    
    
    
    
    
    
    12,579Warrants issued in connection with
refinancing of Notes Payable
    
    
    
    
    
    
    
    
    
    
    13,953
    
    
    
    
    
    
    
    
    
    
    
    13,953Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,187,454
    )
    
    
    
    
    
    
    (1,187,454
    )Balance, December 31, 2008
    
    
    13,200,324
    
    
    $
    13,200
    
    
    $
    59,531,865
    
    
    $
    (57,233,369
    )
    
    $
    (911,516
    )
    
    $
    1,400,180
   F-5




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##### Table of Contents



2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (1,187,454
    )
    
    $
    (2,938,696
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation expense
    
    
    71,336
    
    
    
    104,740Amortization of patents
    
    
    55,908
    
    
    
    37,560Amortization of debt discount
    
    
    27,446
    
    
    
    6,614Common stock and options issued for compensation, consulting,
and vendor services
    
    
    350,339
    
    
    
    620,403Bad debt expense
    
    
    
    
    
    
    69,378Loss on sale/disposal of equipment
    
    
    2,255
    
    
    
    241,530Loss on write-off of patent rights
    
    
    
    
    
    
    157,640Changes in operating assets and liabilities:(Increase) in accounts receivable
    
    
    (579,395
    )
    
    
    (69,106
    )Decrease in royalty receivable
    
    
    15,358
    
    
    
    44,749Decrease (Increase) in inventories
    
    
    916,842
    
    
    
    (313,406
    )Decrease (Increase) to advances to contract manufacturer
    
    
    526,694
    
    
    
    (114,713
    )(Increase) to prepaid expenses and other current assets
    
    
    (48,569
    )
    
    
    (72,654
    )Decrease (Increase) in other assets
    
    
    19,980
    
    
    
    (13,144
    )(Decrease) Increase in accounts payable
    
    
    (891,707
    )
    
    
    1,103,575Increase (Decrease) in accrued expenses
    
    
    282,294
    
    
    
    (30,973
    )(Decrease) in deferred compensation
    
    
    (3,333
    )
    
    
    15,833Net cash used in operating activities
    
    
    (442,006
    )
    
    
    (1,150,670
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (13,106
    )
    
    
    (107,819
    )Proceeds on sale of equipment
    
    
    7,749
    
    
    
    Payment for patent rights
    
    
    (303,975
    )
    
    
    (227,825
    )Net cash used in investing activities
    
    
    (309,332
    )
    
    
    (335,644
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    
    
    
    
    71,201Proceeds from Long term borrowing-other
    
    
    300,000
    
    
    
    1,000,000Proceeds
from Notes Payable
    
    
    450,000
    
    
    
    Net cash provided by financing activities
    
    
    750,000
    
    
    
    1,071,201NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (1,338
    )
    
    
    (415,113
    )Cash and cash equivalents at beginning of year
    
    
    745,003
    
    
    
    1,160,116Cash and cash equivalents at end of year
    
    $
    743,665
    
    
    $
    745,003Supplemental disclosure of cash flow information:Interest expense paid in cash
    
    $
    7,500
    
    
    $
    10,000Income tax paid
    
    $
    4,720
    
    
    $
    1,925Supplemental
disclosure of non cash flow activities:Warrants issued in connection with Line of Credit
    
    $
    12,579
    
    
    $
    Warrants issued in connection with refinancing notes payble
    
    $
    13,953
    
    
    $
    24,557Shares issued to employees in lieu of cash compensation
    
    $
    98,419
    
    
    $
    44,693Shares issued for patents in settlement of litigation
    
    $
    93,600
    
    
    $
    Shares issued to settle accounts payable
    
    $
    578,845
    
    
    $
    
   F-6




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##### Table of Contents



MILESTONE SCIENTIFIC INC.
 
 NOTES TO FINANCIAL STATEMENTS
 NOTE A  ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
 The Wand CompuDent, Wand Plus and STA (Single Tooth Anesthesia) CompuMed. CompuDent CompuMed Wand Plus
   NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      Ionic White
  F-7




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##### Table of Contents



F-8




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##### Table of Contents



Share-Based Payment
  December 31,2008
    
    
    2007Volatility
    
    
    372
    %
    
    
    96
    %Risk-free interest rate
    
    
    2.86
    %
    
    
    4.97
    %Expected life
    
    3 years
    
    
    3 yearsDividend yield
    
    
    0
    %
    
    
    0
    %
  F-9




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##### Table of Contents



CompuDent
    The Fair
Value Option for Financial Assets and Financial Liabilities -Including an amendment of FASB
Statement No. 115.
 Summary No. 141 (revised 2007)
 Non-controlling Interest in Consolidated Financial Statements- and amendment of ARB No. 51.
  F-10




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##### Table of Contents



NOTE C  INVENTORIES
 December 312008
    
    
    2007Inventories consist of the following:Finished Goods
    
    $
    609,279
    
    
    
    1,421,050Component parts and other materials
    
    
    110,623
    
    
    
    215,694$
    719,902
    
    
    
    1,636,744
  NOTE D  ADVANCES TO CONTRACT MANUFACTURER
  NOTE E EQUIPMENT
 December 312008
    
    
    2007Equipment consist of the following:Leasehold improvements
    
    $
    22,317
    
    
    $
    22,317Artwork
    
    
    76,918
    
    
    
    85,550Office furniture and equipment
    
    
    88,848
    
    
    
    99,839Trade show displays
    
    
    57,463
    
    
    
    57,463Computers and software
    
    
    176,276
    
    
    
    163,653Tooling equipment-STA
    
    
    12,377
    
    
    
    12,377STA Trials Units
    
    
    63,752
    
    
    
    63,753Total
    
    
    497,952
    
    
    
    504,952Less accumulated depreciation
    
    
    (345,377
    )
    
    
    (284,144
    )$
    152,574
    
    
    $
    220,808
   F-11




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##### Table of Contents



NOTE F  PATENTS
  NOTE G  INVESTMENT IN DISTRIBUTOR
  NOTE H LINE OF CREDIT and NOTES PAYABLE
   NOTE I STOCKHOLDERS EQUITY
           F-12




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##### Table of Contents



NOTE J  STOCK OPTION PLANS
    F-13




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##### Table of Contents



WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contractual
    
    
    OptionsOptions
    
    
    Price
    
    
    Life (Years)
    
    
    ValueOutstanding, January 1, 2007
    
    
    427,834
    
    
    $
    1.85
    
    
    $
    3.34
    
    
    $
    Granted
    
    
    80,000
    
    
    
    1.68
    
    
    
    4.50
    
    
    
    Exercised
    
    
    (66,667
    )
    
    
    1.07
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (49,833
    )
    
    
    2.54
    
    
    
    
    
    
    
    Outstanding, December 31, 2007
    
    
    391,334
    
    
    
    1.86
    
    
    
    2.85
    
    
    
    108,800Exercisable, December 31, 2007
    
    
    314,334
    
    
    
    1.94
    
    
    
    2.54
    
    
    
    98,350Granted
    
    
    230,832
    
    
    
    0.85
    
    
    
    4.20
    
    
    
    75Exercised during 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (51,334
    )
    
    
    1.19
    
    
    
    
    
    
    
    Outstanding, December 31, 2008
    
    
    570,832
    
    
    
    1.51
    
    
    
    3.01
    
    
    
    75Exercisable, December 31, 2008
    
    
    366,442
    
    
    
    1.83
    
    
    
    2.43
    
    
    
    
 Weighted
    
    
    WeightedNumber
    
    
    Averaged
    
    
    Averageof
    
    
    Exercise
    
    
    Grant DateOptions
    
    
    Price
    
    
    Fair ValueVESTED OPTIONSOutstanding, January 1, 2007
    
    
    277,167
    
    
    $
    2.05
    
    
    $
    Exercised during 2007
    
    
    (66,667
    )
    
    
    1.07
    
    
    
    Vested Options during 2007
    
    
    121,445
    
    
    
    1.59
    
    
    
    Forfeited during 2007
    
    
    (17,611
    )
    
    
    2.54
    
    
    
    Outstanding, December 31, 2007
    
    
    314,334
    
    
    
    1.94
    
    
    
    Vested Options during 2008
    
    
    103,442
    
    
    
    
    
    
    
    Forfeited during 2008
    
    
    (51,334
    )
    
    
    1.19
    
    
    
    Outstanding, December 31, 2008
    
    
    366,442
    
    
    
    1.83
    
    
    
    NONVESTED OPTIONSNonvested, January 1, 2007
    
    
    150,667
    
    
    
    1.49
    
    
    
    0.78Granted during 2007
    
    
    80,000
    
    
    
    1.68
    
    
    
    1.11Vested during 2007
    
    
    (121,445
    )
    
    
    1.59
    
    
    
    1.08Forfeited during 2007
    
    
    (32,222
    )
    
    
    1.74
    
    
    
    0.89Nonvested, December 31, 2007
    
    
    77,000
    
    
    
    1.56
    
    
    
    1.00Granted Options during 2008
    
    
    230,832
    
    
    
    0.85
    
    
    
    0.84Vested during 2008
    
    
    (103,442
    )
    
    
    1.19
    
    
    
    0.89Forfeited during 2008
    
    
    
    
    
    
    
    
    
    
    Nonvested, December 31, 2008
    
    
    204,390
    
    
    
    0.94
    
    
    
    0.87
   F-14




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##### Table of Contents



Weighted
    
    
    Weighted
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Average
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Grant Date
    
    
    OptionsOptions
    
    
    Price
    
    
    Fair Value
    
    
    ValueOutstanding, January 1, 2007
    
    
    522,466
    
    
    $
    3.51
    
    
    $
    
    
    
    $
    Granted during 2007
    
    
    125,000
    
    
    
    1.77
    
    
    
    
    
    
    
    Exercised during 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired during 2007
    
    
    (8,333
    )
    
    
    4.92
    
    
    
    
    
    
    
    Outstanding, December 31, 2007
    
    
    639,133
    
    
    
    3.15
    
    
    
    2.56
    
    
    
    20,667Exercisable, December 31, 2007
    
    
    514,133
    
    
    
    3.49
    
    
    
    2.19
    
    
    
    1,667Granted during 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited during 2008
    
    
    (11,666
    )
    
    
    3.75
    
    
    
    
    
    
    
    Outstanding, December 31, 2008
    
    
    627,467
    
    
    
    3.14
    
    
    
    1.61
    
    
    
    Exercisable, December 31, 2008
    
    
    564,967
    
    
    
    3.29
    
    
    
    1.44
    
    
    
    
 WeightedNumber
    
    
    Averagedof
    
    
    ExerciseOptions
    
    
    PriceVESTED OPTIONSOutstanding, January 1, 2007
    
    
    310,910
    
    
    $
    3.43Exercised during 2007
    
    
    
    
    
    
    Vested Options during 2007
    
    
    203,223
    
    
    
    3.61Expired during 2007
    
    
    
    
    
    
    Outstanding, December 31, 2007
    
    
    514,133
    
    
    
    3.49Exercised during 2008
    
    
    
    
    
    
    Vested during 2008
    
    
    62,500
    
    
    
    1.77Forfeited during 2008
    
    
    (11,666
    )
    
    
    3.75Outstanding, December 31, 2008
    
    
    564,967
    
    
    
    3.29NONVESTED OPTIONSNonvested, January 1, 2007
    
    
    211,556
    
    
    
    3.63Granted during 2007
    
    
    125,000
    
    
    
    1.77Vested during 2007
    
    
    (208,778
    )
    
    
    3.61Forfeited during 2007
    
    
    (2,778
    )
    
    
    4.92Nonvested, December 31, 2007
    
    
    125,000
    
    
    
    1.77Granted Options during 2008
    
    
    
    
    
    
    Vested during 2008
    
    
    (62,500
    )
    
    
    1.77Forfeited or expired during 2008
    
    
    
    
    
    
    Nonvested, December 31, 2008
    
    
    62,500
    
    
    
    1.77
  NOTE K  EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION
   F-15




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##### Table of Contents



NOTE L  INCOME TAXES
   2008
    
    
    2007Current AssetsAllowance for doubtful accounts
    
    $
    2,000
    
    
    $
    2,000Inventory allowance
    
    
    70,000
    
    
    
    40,000Inventory written off but not disposed of
    
    
    
    
    
    
    206,000Warranty reserve
    
    
    10,000
    
    
    
    10,000Deferred officers compensation
    
    
    40,000
    
    
    
    Subtotal
    
    
    122,000
    
    
    
    258,000Valuation allowance
    
    
    (122,000
    )
    
    
    (258,000
    )Current deferred tax asset
    
    $
    
    
    
    $
    Non-current assetsNet operating loss carryforward
    
    $
    16,500,000
    
    
    $
    16,400,000Valuation allowance
    
    $
    (16,500,000
    )
    
    $
    (16,400,000
    )Non-current deferred tax asset
    
    $
    
    
    
    $
    
   F-16




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##### Table of Contents



2008
    
    
    2007Statutory rate
    
    
    (34
    )%
    
    
    (34
    )%State income tax  all states
    
    
    (06
    )%
    
    
    (06
    )%(40
    )%
    
    
    (40
    )%Current year valuation allowance
    
    
    40
    %
    
    
    40
    %Benefit for income taxes
    
    
    0
    %
    
    
    0
    %
   Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
 NOTE M  PRODUCT SALES AND SIGNIFICANT CUSTOMERS AND VENDORS
  Year End December 31,2008
    
    
    2007Units
    
    $
    1,609,944
    
    
    $
    1,997,514Handpieces
    
    
    4,924,151
    
    
    
    4,161,580Other
    
    
    61,430
    
    
    
    103,514$
    6,595,525
    
    
    $
    6,262,608United States
    
    $
    4,341,688
    
    
    $
    4,593,656Canada
    
    
    513,651
    
    
    
    309,450Other foreign
    
    
    1,740,186
    
    
    
    1,359,502$
    6,595,525
    
    
    $
    6,262,608
 STA CompuDent
  F-17




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##### Table of Contents



STA CompuDent CompuMed
  Ionic White
 NOTE N  COMMITMENTS AND OTHER
 (1) Lease Commitments
   Year Ending December 31,20082009
    
    
    52,2942010
    
    
    7,3042011
    
    
    6,2642012
    
    
    52266,384
   (2) Contract Manufacturing Arrangement
 CompuDent CompuMed The Wand The Wand
   F-18




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##### Table of Contents



(3) Other Commitments
 SafetyWand CompuFlo, CompuDent
 CoolBlue Ionic White
 (4) Litigation
  (5) Subsequent Events
  NOTE O  PENSION PLAN
   F-19




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##### Table of Contents



EXHIBIT INDEX
 EXHIBITNO.
    
    DESCRIPTION3.1
    
    
    Certificate of Incorporation of Milestone (1)3.2
    
    
    Certificate of Amendment filed July 13, 1995 (2)3.3
    
    
    Certificate of Amendment filed December 6, 1996 (3)3.4
    
    
    Certificate of Amendment filed December 17, 1997 (4)3.5
    
    
    Certificate of Amendment filed July 23, 2003 (6)3.6
    
    
    Certificate of Amendment filed January 8, 2004. (6)3.7
    
    
    Certificate of Designation filed January 15, 2004 (6)3.8
    
    
    By-laws of Milestone (1)4.1
    
    
    Specimen stock certificate (2)4.3
    
    
    Form of warrant agreement, including form of warrant (8)10.1
    
    
    Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3)10.2
    
    
    Agreement with DaVinci Systems dated July 30, 2003 (6)10.3
    
    
    Agreement with Strider dated September 3, 2003 (6)10.4
    
    
    Agreement with Len Osser and K. Tucker Andersen, dated October 9, 2003 (6)10.5
    
    
    Agreement with Morse, Zelnick, Rose & Lander dated December 22, 2003 (6)10.6
    **
    
    Employment Agreement with Leonard Osser dated December 20, 2003 (6)10.7
    
    
    Agreement with United Systems dated October 20, 2004 (9)10.8
    
    
    Agreement with Mark Hochman dated as of January 1, 2005 (9)10.9
    
    
    Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. and Milestone (9)10.10
    
    
    Agreement with DaVinci regarding exclusive license over patented products dated June 1, 2004 (10)10.11
    **
    
    Employment Agreement with Leonard Osser dated January 1, 2008* (11)10.12
    **
    
    Employment Agreement with Joe W. Martin dated May 2, 2007* (11)14
    
    
    Code of Ethics (7)23.1
    
    
    Consent of Holtz Rubenstein Reminick LLP*31.1
    
    
    Rule 13a-14(a) Certifications  Chief Executive Officer*31.2
    
    
    Rule 13a-14(a) Certifications  Chief Financial Officer*32.1
    
    

Section 1350 Certifications  Chief Executive Officer*32.2
    
    

Section 1350 Certifications  Chief Financial Officer*
 
 *
    
    Filed herewith.**
    
    Indicates management contract or compensatory plan or arrangement




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##### Table of Contents



(1)
    
    Incorporated by reference to Milestones Registration Statement on Form SB-2 No. 33-92324.(2)
    
    Incorporated by reference to Amendment No. 1 to Milestones Registration Statement on Form
SB-2 No. 333-92324.(3)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 1996.(4)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 1999.(5)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110376,
Amendment No. 1.(6)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110376,
Amendment No. 3.(7)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2003.(8)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110367,
Amendment No. 5.(9)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2004.(10)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2005.(11)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2007.